We periodically report on matters that impact the costs large volume commercial, industrial and institutional customers pay for water/wastewater/stormwater service.  Below is information pertaining to a York Water Company matter before the Pennsylvania Public Utility Commission (“PUC” or “Commission”).

At the March 2, 2017, Public Meeting, the PUC voted to approve York Water Company’s (“York Water” or “Company”) plan for immediate replacement of both company and customer-owned lead service lines.  This permits York Water to replace customer-owned lead lines at its initial expense, and then recover the costs as a regulatory asset in the Company’s next rate case.

York Water’s most recent drinking water results exceeded the lead action level established by Pennsylvania regulations.  As a consequence, the Company became subject to a Consent Order with PaDEP that required specific action to reduce lead levels at customer taps.  Pursuant to the Consent Order, York Water proposed a two-phase plan to replace both company and customer-owned lead service lines.

The Commission granted the Company’s two-phase plan, permitting York Water to bear the costs of replacing customer-owned lead services lines, and to begin line replacement work immediately, consistent with the Consent Order.

Phase I involves replacement of customer-owned lead service lines discovered concurrently with York Water’s planned replacement of approximately 1,660 lead company-owned service lines in certain portions of the water system.  The estimated cost of replacing company-owned lead service lines is $2 million.  After replacement, the customer will continue to own the service line and be responsible for maintenance and repair.

Phase II involves annual replacement of 400 lead customer-owned service lines whenever they are discovered, over a period of nine years.  Under this phase, York Water would offer payment towards the replacement cost of the customer-owned lead service line.  As with Phase I, the customer will continue to be responsible for maintaining and repairing the service line after replacement.  In the event the number of Phase II replacements exceed those authorized, York Water must process them on a first-come, first-served basis.  However, if a water test exceeds 15 pbb of lead, then the Company may prioritize such replacement.

As to cost, York Water must make a payment towards the replacement cost of the lead customer-owned service line up to the Company’s average contracted cost.  For 2017, the average contracted cost is $1,150/service line replacement <10 feet and $1,250/service line replacement >10 feet.  Customers must pay any difference as a lump sum, or as an amount added to their bill, to be paid within one year.  The Company agrees not to charge interest on any payment period for the difference, other than late payment interest.  If the Company is unable to collect the difference from a customer, and the difference is written off as uncollectible, York Water will be permitted to include  uncollected amounts in the regulatory asset account.

The Company will offer a sliding-scale reimbursement to customers that have already replaced lead service lines within the past four years.  As such, a customer who replaced a line within one year may recoup 80% of the cost of replacement from the Company.  As the replacement grows older, reimbursement is less.

York Water must amortize amounts booked to the regulatory asset account in a base rate proceeding over a reasonable period (<6 years).  Amortization will begin on the effective date of new rates in a base rate proceeding.  York Water will reconcile amounts amortized to amounts incurred, and the difference must continue to be amortized in subsequent base rate proceedings.  The allocation among customer classes of the recovery of amortized costs will be determined in a base rate proceeding.

In closing remarks, Commissioner Powelson stated: “The importance of ensuring safe drinking water for all Pennsylvanians cannot be overstated.  However, in this post-Flint, Michigan world, it is not something we can take for granted.  I commend York Water for recognizing this, for taking the issue seriously, and for acting quickly to resolve it.  I encourage other utilities to do the same….”

However, it appears the PUC actions have not (yet) addressed the cost consequences on all ratepayers for lead-line replacement.  No legitimate reason exists for this cost to be passed on to large commercial or industrial customers; why this unvarnished fact was not now determined by this Commission is unclear, but suggests some contemplate these costs to be recovered volumetrically (as in the DSIC or CSIC) in which large commercial and industrial customers will shoulder most of the cost responsibility.

At McNees, Wallace, and Nurick, LLC, we often write of current or emerging issues that may have significant cost implications for large commercial, industrial and institutional end users in Pennsylvania.  We also closely monitor newly proposed legislation or regulation that may affect service rates, terms and use conditions.

For example, in 2016, we closely tracked HB 2114 introduced by Representative Mike Sturla (D-Lancaster).  It was captioned as follows: “Providing for registration of extraordinary nonagriculture and nonmunicipal water users; imposing a water resource fee; establishing the Water Use Fund; and providing for submission of a question to the electorate authorizing incurring of indebtedness for water-related environmental initiatives.”

This Bill defines “extraordinary water user” as “a person that withdraws more than 10,000 gallons of water a day from the waters of this Commonwealth for the purpose of for-profit business.”  In addition to a rather rigorous filing requirement, this Bill proposed a fee of $0.001 per gallon for water consumption greater than 10,000 gallons/day.”  In other words, this proposed legislation seeks to foist an additional $110,000/year on a large commercial/industrial customer using 10,000,000 gallons/month.  No mention is made in the Bill that some large volumes users (within the Susquehanna River Basin) have been paying a similar fee for some time. (See our earlier Blog articles regarding this issue.)

In 2016, this bill stalled in Committee; as such, by the end of the session, we believed the matter had been put downWe learned recently that plans exist for this same bill to be re-introduced later in 2017.  This is an important issue for large volume commercial and industrial users all of whom likely use far more than 10,000 gallons/day.

Recently, we learned that this bill is slated to be introduced in the second quarter of 2017 and may also include additional cost factors to be introduced in the upcoming Chesapeake Bay Commission meeting.  That meeting is currently slated for March 4 and 5, 2017, in Washington, DC.  Bill proponents are hoping to incorporate additional initiatives into what will be more expansive and far-reaching legislation.

This is yet one more example of the significantly increasing prices paid for provision of water and wastewater services, as they pertain to industrial, large commercial and institutional end-users.  This trend is likely, absent more vocal opposition from all affected end users, to continue in 2017 and beyond.

The Pennsylvania Statewide Water Users group is organizing an initiative to raise the awareness of lawmakers as to the potential impact of such legislation, and to coalesce if necessary, a group of impacted large volume users to provide testimony in opposition to such a significant cost increase.  If you would like more information, or if you have questions, please contact Jim Dougherty at 717.237.5249 or jdougherty@mcneeslaw.com.

Legislation to reform Ohio’s energy efficiency, peak demand reduction, and renewable energy mandates is again before the Ohio General Assembly.  House Bill (“HB”) 114 was introduced in the Ohio House on March 7, 2017.  The bill has 55 co-sponsors.

As a bit of background, in 2008 Ohio adopted mandates that require each electric utility in the state to reduce energy consumption measured as a reduction in kilowatt-hours (“kWh”) of sales as well as a peak kilowatt (“kW”) demand reduction relative to a historic baseline.  The 2008 legislation also required each utility and each competitive supplier to source a percentage of its generation supply from renewable energy sources.

Since 2008, there have been several legislative changes to the mandates, including a provision that permits businesses served above primary voltage and those that self-assess the kWh tax to opt-out of the energy efficiency and peak demand reduction mandates beginning January 1, 2017.

If adopted, HB 114 would extend the opt-out opportunity of the energy efficiency and peak demand reduction mandates to businesses that qualify as mercantile customers under Ohio law (businesses that consume 700,000 kWh per year or are part of a national account involving multiple facilities in one or more states) effective January 1, 2019.

HB 114 also contains a provision that would reduce the energy efficiency mandate from 22.5% to 17.3% and would provide for counting reform as to what the Public Utilities Commission of Ohio (“PUCO”) may count towards the electric utilities’ compliance obligation.

HB 114 also proposes changes to the renewable mandates.  If adopted, the legislation would transform the renewable mandate to a non-mandatory provision and would provide all customers of electric utilities the opportunity to opt-out of the renewable mandates beginning January 1, 2019.

HB 114 further proposes a firm end-date to the energy efficiency, peak demand reduction, and renewable mandates in 2027.  Current law provides that at the end of the year-after-year escalation in the mandates that the final tier of compliance continue indefinitely thereafter.

The bill is similar to legislation that passed the Ohio House and Senate last year but was vetoed by the Governor late in 2016.

The full text of HB 114 is available at:

https://www.legislature.ohio.gov/legislation/legislation-summary?id=GA132-HB-114

As discussed in our blog post last summer, the Pennsylvania Public Utility Commission (“PUC” or “Commission”) has been investigating the potential benefits of adopting alternative ratemaking methodologies over the past two years.  The PUC believes this proceeding will reveal: (i) whether other rate mechanisms may encourage utilities to better implement energy efficiency and conservation programs; (ii) whether such rate mechanisms are just and reasonable and in the public interest; and (iii) whether the benefits of implementing alternative rate mechanisms outweigh any associated costs.  As part of this proceeding, the PUC examined several forms of alternative ratemaking, including revenue decoupling, lost revenue adjustment mechanisms, and straight fixed/variable pricing, and invited members of the Commonwealth’s energy community to testify and file Comments on the merits of these proposed ratemaking methodologies.  Many of these proposed ratemaking methodologies, particularly revenue decoupling, generated spirited debate among members of the Pennsylvania energy industry.

After considering stakeholders’ initial Comments, on March 2, 2017, the Commission issued a Tentative Order indicating it will continue its “investigation into alternative ratemaking by seeking comments on, and potential processes to advance, alternative rate methodologies that address issues each utility industry is facing.”  The PUC acknowledged that not all rate methodologies and performance incentives are applicable to each type of utility or all utilities within a particular utility type.  Accordingly, the Commission issued a series of questions tailored to electric distribution companies, natural gas distribution companies, and water and wastewater utilities to assess the reasonableness and efficacy of employing certain rate methodologies tailored to each kind of utility under the PUC’s existing statutory authority.  The PUC asks these utilities to highlight what, if any, alternative rate methodologies could or should be used, and requests those utilities to denote the advantages and disadvantages of these approaches.  The Commission also requests that utilities denote the effects of proposed alternative rate methodologies on small and large customers across various rate classes.

Interested stakeholders have until Monday, April 17, 2017 to submit Comments on the PUC’s March 2, 2017 Tentative Order.  Once all Comments are filed, individuals will have until May 16, 2017, to submit Reply Comments addressing assertions made by other commenting parties.  If you are interested in submitting Comments on this issue, please contact Pamela Polacek (ppolacek@mcneeslaw.com), Alessandra Hylander (ahylander@mcneeslaw.com), or any other member of the McNees, Wallace, & Nurick, LLC, Energy and Environmental Practice Group.

If you manufacture or import a chemical subject to the Toxic Substances Control Act (“TSCA”) Chemical Substance Inventory (currently 85,000 chemicals), the U.S. Environmental Protection Agency (“EPA”) has proposed to require you to confirm each such chemical’s active status using a ten-year lookback period of June 21, 2006 to June 21, 2016. In addition to manufacturers and importers, the proposal may affect “processors” of chemicals—basically anyone who adds a TSCA-regulated substance to its products for distribution in commerce.  Because the rule will require reporting by December 22, 2017, you will want to begin gathering the requisite information and evaluating its impacts now. This proposed rule, the TSCA Inventory Notification (Active-Inactive) Requirements (the “Inventory Proposal”), is one of many rules that will implement the 2016 TSCA reform.

Entities affected by this proposed regulation have until March 14, 2017 to submit formal Comments on the EPA’s proposed rule.  To learn more about the EPA’s proposed regulation and how it may impact your business, please click here or contact Rick Friedman at 717.237.5469 (rfriedman@mcneeslaw.com), Scott Gould at 717.237.5304 (sgould@mcneeslaw.com), or Steve Matzura at 717.237.5276 (smatzura@mcneeslaw.com).

As a result of guidance issued by the Pennsylvania Department of Revenue (“DOR”), solar generators may qualify for the sales and use tax manufacturing exclusion.  Accordingly, solar generators’ purchases of expensive machinery, equipment, parts and foundations, and supplies would be excluded from Pennsylvania’s sales and use tax.

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The DOR issued guidance in Sales Tax Bulletin No. 2010-01 and Sales and Use Tax Ruling No. SUT-10-0001 on tax exclusions for Pennsylvania-based solar generators.  As a result of this guidance, taxpayers constructing solar generation facilities in Pennsylvania could qualify for the state sales and use tax manufacturing exclusion.

Eligibility for the Exclusion:

The guidance suggests that in order to qualify as being “engaged in the business of manufacturing electricity,” the following must apply:

  • The electricity production is conducted in an independent, separate and distinct location, utilizing independent, separate and distinct machinery and supplies devoted predominately to electricity producing activities.
  • The electricity production is the responsibility of employees assigned to the job of electricity production and whose duties are predominately related to electricity production.
  • Separate accounting or interdepartmental billing is provided to reflect the cost of operating electricity production activities and to charge these costs against any other business activities conducted by the electricity producer.
  • The electricity production activities are separate and distinct from any other business activities of the electrical producer.
  • Electrical production activities are of sufficient size, scope and character that they could be conducted on a commercially viable basis separate and distinct from any other business activities of the electricity producer.

Accordingly, if a Pennsylvania solar generator meets all of the criteria listed above, it could claim the manufacturing exclusion from sales and use tax on the purchase of equipment, machinery, parts and foundations therefore, and supplies claimed to be directly used in electricity manufacturing.  The particular generator in the ruling planned to sell the output to the public utility.  It seems generators selling to the wholesale market or entities could also qualify; however, the DOR has not issued a specific guidance on this situation.

Claiming the Exclusion:

A contractor building a Pennsylvania solar generation facility could also claim the manufacturing exclusion on the purchase of equipment, machinery, parts and foundations therefore, and supplies to be installed pursuant to a construction contract.  The contractor would have to execute and tender a properly completed Pennsylvania exemption certificate (Form REV-1220) to the Pennsylvania licensed vendor.  The contractor must also obtain a properly completed Pennsylvania exemption certificate (Form REV-1220) from the person/entity with whom he enters into such construction contract in order to protect himself in case of a Pennsylvania sales and use tax audit.

Recovering Pre-paid Sales and Use Tax on Exempt Purchases:

If a Pennsylvania solar generator or a construction contractor has already paid sales and use tax on purchases that could have been exempt from taxation, they may be able to claim a refund of the tax paid on purchases made in the last three years.

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If you have any questions on whether your facility qualifies for the manufacturing exclusion or whether you may be entitled to sales and use tax refunds, please contact Paul Morcom, or any member of McNees’s tax group, to discuss.

A recent decision by the Pennsylvania Public Utility Commission (“PUC” or “Commission”) confirms that Pennsylvania public utilities with combined sewer systems (i.e., systems that collect both sewage and stormwater) may incorporate stormwater charges in their service charges.  While some public utilities have already been incorporating stormwater collection charges in their sewage rates, not all utilities have carried forth this practice.  As a result, this decision could increase sewage rates for some large commercial and industrial customers experiencing significant stormwater flows.

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On March 30, 2016, the Pennsylvania American Water Company (“PAWC”) and the Sewer Authority of the City of Scranton (“SSA”) filed an Application with the PUC to permit PAWC to purchase the SSA’s combined sewer system.  As indicated above, combined sewer systems collect sewage and stormwater, so the PUC’s disposition of this Application would clarify the ability of a Pennsylvania public utility to include stormwater charges in its wastewater service rates.  Although Administrative Law Judges David A. Salapa and Steven K. Haas recommended that the PUC reject the proposed Application, the PUC approved it on October 19, 2016.

As a result of the PUC’s approval, statutory enabling legislation was required.  Senate Bill No. 881 was revived and amended to make necessary changes to the Public Utility Code.  Specifically, the Bill amends the Public Utility Code to change the reference of “sewer” to “wastewater,” and expanded the definition of wastewater to include certain “stormwater.”  This bill passed both chambers [October 26 (Senate) and October 27 (House)] and was signed by Governor Wolf.

The Bill provides as follows:

Wastewater.  Any used water and water-carried solids collected or conveyed by a sewer, including:

(1)  Sewage, as defined in Section 2 of the act of January 24, 1966 (1965 P.L. 1535, No. 537), known as the Pennsylvania Sewage Facilities Act.

(2)  Industrial waste originating from an establishment.  For the purposes of this paragraph, the terms “industrial waste” and “establishment” shall be as defined in Section 1 of the Act of June 22, 1937 (P.L. 1987, No. 394), known as the Clean Streams Law.

(3)   Infiltration or inflow into sewers.

(4)   Other water containing solids or pollutants.

(5)  Storm water which is or will become mixed with waters described under paragraph (1), (2), (3) or (4) within a combined sewer system.

The term does not include storm water collected in a Municipal Separate Storm Sewer, as that term is defined by 40 CFR 122.26(b)(8) (Relating to storm water discharges (applicable to state NPDES programs, see § 123.25)), that does not flow into a combined sewer system.

This legislation, now codified as PA Act 154, allows Pennsylvania utilities providing wastewater service to include, in certain cases (i.e., combined sewer systems), stormwater charges into rates.  While some Pennsylvania municipal wastewater service providers (e.g., Philadelphia Water Department) have been including stormwater charges in wastewater rates for some time, it will be much more commonplace with PUC-regulated service providers with this new legislation.

On October 6, 2016, the Pennsylvania Public Utility Commission entered a Final Order in the Proceeding to Evaluate the Transition to Corrected Non‑Solar Tier I Calculation Methodology, Docket A-2009-2093383.  The October 6 Final Order evaluated the public comments regarding the Commission’s proposals to address an unanticipated seven percent increase in the non-solar Tier I Alternative Energy Credit (“AEC”) for the 2016 compliance year.  The Commission is charged with using its general powers to carry out, execute, and enforce AEC obligations under the Alternative Energy Portfolio Standards Act of 2004 (“AEPS Act”).  As we explained in a previous blog entry, the Commission had become aware of a recurring error over the past six years regarding the calculation of the non-solar Tier I AEC obligation quarterly adjustment.

In the Final Order, the PUC rejected the solution that would have required electric distribution companies (“EDCs”) to procure the additional needed AECs, transfer those procured credits to all load serving entities, and recover the costs of the procurement through a preexisting non-bypassable surcharge.  The Commission explained that this solution (1) inappropriately shifts the responsibility to acquire and retire AECs from electric generation suppliers to EDCs under the AEPS Act and Commission regulations; (2) is administratively burdensome; (3) incurs unnecessary time and resources; and (4) does not ameliorate the costs for compliance, which would ultimately be borne by all ratepayers.

Based on the high level of support in the comments, the Commission determined that the second solution – delaying the true-up period for the non-solar Tier I adjustment credits — is the most reasonable solution.  Accordingly, the Commission further extended the true-up period for non‑solar Tier I adjustment obligations for the 2016 AEPS compliance year from November 30, 2016 to May 1, 2017.

If you have any questions or concerns regarding the PUC’s Final Order and how it may potentially impact your business, please do not hesitate to contact us.

On September 21, 2016, the Susquehanna River Basin Commission (“SRBC”) published a proposed rule that would expand the scope of its current authority over projects that withdraw and use water in Pennsylvania, Maryland, and New York.  The proposal would amend application requirements and SRBC’s review standards for projects, as well as add an entire subpart to its regulations for registration and reporting of “grandfathered” projects (which previously were not regulated).   Water users should expect additional regulation and scrutiny of all projects that involve withdrawals of surface water or groundwater and/or consumptive uses exceeding SRBC thresholds, whether they are new, existing, or (now) grandfathered projects.

Grandfathered Projects.  The most significant proposal is regulation of “grandfathered” projects, which involve water withdrawals or consumptive uses that began before specified dates in the regulations and did not previously require SRBC approval.  SRBC has estimated that there are some-760 grandfathered projects, many of which are not tracked by SRBC or member states, that account for the same amount of water use as all existing regulated consumptive uses in the Basin.  Therefore, SRBC has proposed a mandatory registration-and-reporting program for grandfathered withdrawals and uses, which includes a one-time registration and periodic reporting of withdrawals and uses, along with associated fees.  As support for this rule, SRBC cited to its responsibility to wisely manage water resources in the Basin and the corresponding need to close this “knowledge gap” by comprehensively tracking water usage.

In attempting to close this gap, SRBC has claimed that the registration requirements will not open the door to review-and-approval requirements for grandfathered projects.  In some respects, the registration requirements may be similar to those imposed by the states.  However, this may be only the first step for additional regulation of grandfathered projects, particularly once SRBC gathers and analyzes the registration data.  Indeed, the proposal potentially opens a floodgate of additional regulation. Failure to register within two years of the effective date would render a grandfathered project subject to SRBC’s review-and-approval authority.  Some key informational requirements for this critical registration include:

  • Identification of metering and monitoring for withdrawals and consumptive uses;
  • Reporting five years of quantity data, or other information that may be used to determine quantities withdrawn or consumptively used;
  • Identification of groundwater levels and elevation monitoring methods for groundwater sources;
  • A description of the processes that involve consumptive uses;
  • A request for specific grandfathered quantities; and
  • Any other information SRBC determines necessary.

Accordingly, it is clear that SRBC intends to scrutinize whether and to what extent currently unregulated withdrawals and uses actually qualify for “grandfathering.”  Under the proposal, the SRBC Executive Director must determine the appropriate grandfathered quantity and, in doing so, can examine the accuracy of metering and monitoring.  Increases of any amount over the determined grandfathered quantity would trigger SRBC’s review-and-approval authority.  Although SRBC’s approach is not yet in final form, those potentially affected should already ensure they are accurately metering and documenting withdrawals and usage.  It will also be important for potentially affected water users to understand their processes and monitor consumptive uses from those processes.  For example, as part of the registration, one provision requires SRBC to evaluate current metering and monitoring and authorizes SRBC to require a metering and monitoring plan.  The proposal would also trigger consumptive-use mitigation, such as fees, for certain grandfathered projects.

Other Projects.  New projects may also be affected by the registration requirements described above because SRBC will use the data on grandfathered projects to analyze the impact on waters of the Basin when deciding to approve or deny a new project.  The proposal also would impose several additional requirements to alter SRBC procedures.  It would amend the required contents of applications for new projects and renewals, requiring specific information depending on the type of project, such as an “alternatives analysis.”  The proposal would amend standards for SRBC’s review and approval and authorize SRBC to require monitoring for impacts to water quality and aquatic biological communities.  SRBC has also proposed to revise the provisions for public hearings and enforcement actions.  For example, the proposal expands the Executive Director’s enforcement authority, allowing the Director to issue compliance orders and determine civil penalty amounts, and acknowledges the SRBC’s use of consent orders and agreements and settlements to resolve enforcement actions.  These are just a few of the various amendments proposed by SRBC that may impact water users.

Next Steps. SRBC intends to hold informational webinars on October 11 and October 17 and then conduct four public hearings throughout November and December, with the first meeting scheduled for November 3 in Harrisburg.  Interested stakeholders should understand how the rules may affect them and weigh in through the public-comment process, which is open until January 30, 2017.  Stakeholders seeking more information or advice should contact attorneys and technical specialists who are experienced in these matters.  McNees contacts include:

 

Recently, many large commercial and industrial enterprises have sought to reduce their operating expenses by shopping for their electric supply.  If you are negotiating an electric supply agreement with an electric supplier, there are a few key terms that you should consider.  Please click here to learn more about the following key negotiable terms: (1) price and product; (2) regulatory changes and other price change opportunities; (3) contract term and renewal; and (4) billing issues.  If you have any further questions, please contact us and we will be happy to assist you.